Politics of Malawi’s Oil – Mining & Trade Review (October 2015)

The piece “Politics of Oil” featured below was initially published in Malawi’s Mining & Trade Review Issue Number 30 that is circulating this October 2015.

The full edition is available for download here. This monthly publication is edited by Marcel Chimwala.

Politics of Oil

By Marcel Chimwala

An aura of uncertainty has gripped Malawi’s oil exploration subsector as President Arthur Peter Mutharika’s administration is yet to lift the suspension of oil exploration activities, which it imposed in November last year to pave way for investigations of alleged irregularities in the award of the licences by the deposed Joyce Banda administration.

An independent consultant in the resources sector, James Chatupa, tells Mining & Trade Review that there is currently no activities going on in the oil exploration subsector as players in the industry have for over 10 months now been waiting for the government to come up with a decision on the oil licences.

As local consultants, we were hopeful to benefit from the sector when the licences were awarded but this wind of change has left us idle,

Prospects for discovery of hydrocarbons are high in the Lake Malawi and Shire Valley areas, which form part of the Great African Rift Valley that has seen discovery of oil and gas in countries such as Tanzania and Burundi.

Consequently, the Malawi Government divided the areas into six blocks for the purposes of oil and gas prospecting.

The then Bingu Wa Mutharika administration initially awarded Blocks 2 and 3 covering part of Karonga and Nkhata bay, which geologists say have the highest chances for oil discovery, to UK firm Surestream Petroleum in 2011.

However, the sudden death of Mutharika which saw the elevation of the then Vice President Joyce Banda to President never worked well for the British investor as Banda claimed at one of her Press Conferences that she did not know Surestream.

Seemingly sensing the wind of uncertainty in its dealings with Banda’s government, Surestream sold the controlling shareholding in its tenements to an international expatriate firm, Hamra Oil.

The deal was done secretly such that Mining & Trade Review’s follow up with Surestream General Manager Keith Robinson and the then Principal Secretary Leonard Kalindekafe to establish how worthy was the deal and if the government realised any money from Surestream in form of capital gains taxes yielded no tangible results.

I am not aware of that. Do you mean Keith was telling you that?

said Kalindekafe, when asked about the deal, before cutting the line.

The third block to be awarded to investors was Block 1, which in 2012 was awarded to South Africa’s Sacoil by the Joyce Banda administration which also later in 2013 awarded Blocks 4 and 5 to UAE firm Rakgas MB45 and Block 6 to another expatriate firm, Pacific Oil Limited.

Soon after assuming the mantle, Peter Mutharika’s administration suspended oil exploration in all these six blocks.

The suspension of the exploration work came into force after Hamra Oil had completed a full tensor survey in Blocks 2 and 3 and Rakgas had completed the same in Blocks 4 and 5 while Pacific Oil was obstructed to conduct the survey by the suspension order, which the Mutharika administration issued through Principal Secretary for Ministry of Natural Resources, Energy and Mining, Ben Botolo.

The Peter Mutharika administration initially claimed that it did not recognise any oil exploration tenement holder except Surestream Petroleum which was awarded the tenements by the administration of Peter’s late brother Bingu.

The President has, meanwhile, threatened to use his constitutional powers to revoke the licences from the investors.

We will revoke the licences if we find out that there were irregularities in awarding them. The oil resources belong to Malawi and we can reserve them for future generations,

said Mutharika in a speech monitored on state broadcaster, Malawi Broadcasting Corporation.

Among other issues, Peter Mutharika’s administration is not happy that the Joyce Banda administration prematurely signed Petroleum Sharing Agreements with the investors, which gives details of how proceeds from oil and gas will be shared between the government and the investors who will develop the prospects.

The investors consider the signing of the agreements as important for stability of their operations because with such agreements in place, no administration can just come and push them aside after investing a fortune in developing the prospects.

The Mutharika administration also suspects that the three tenement holders, Rakgas, Hamra Oil and Pacific Oil fall under one company, because one person signed for their licences.

However, the investors argue that one person signed for the licences as an agent since the companies were from the same region and it would have been expansive for the companies to mobilize a different person to sign for each tenement.

On its part, Sacoil Holdings completed an environmental screening study for Block 1 which falls in the Chitipa-Karonga area and is yet to mobilise funds to kickstart exploration.

In their encounters with members of communities in their operation areas, the oil exploration firms promised to carry out a number of development projects proposed by the communities including construction of schools blocks, entertainment centres, hospitals and rural growth centres but everything is at a standstill following the suspension of the exploration activities.

For further information, see an earlier blog post on the Attorney General’s position on the oil exploration licences and agreements – Kalekeni Kaphale argues that they should all be cancelled as the law was broken and due process was not followed.